Eric Rea | Crain's Utah

In this ongoing series, we ask executives, entrepreneurs and business leaders about mistakes that have shaped their business philosophy.

Eric Rea

Background:  

Privately-held Podium helps businesses drive customer interaction in the form of online reviews to increase visibility, improve business operations, and drive purchase decisions. The company serves more than 80,000 users across nearly 10,000 businesses in the United States, Canada, the U.K. and Australia. Rea started Podium three years ago out of the spare bedroom of his apartment, along with co-founder Dennis Steele. Headquartered in Lehi, Podium employs 175 people.

The Mistake:

We tried outsourcing some of the core competencies of our business, which ended up being a huge mistake. Luckily, we realized that pretty quickly and made the correction.

When we started the business, I was a pretty good, junior-level engineer. I'd only graduated from school a year previous to starting the business. I could do some things, but a lot of the other things were above my paygrade, and I was also running along with my partner, sales and client success and other parts of the business.

It was difficult, early on, when you're operating out of a spare bedroom, to recruit engineers, [and so] we outsourced our engineering to overseas vendors. It seemed like a great idea up front, but it's just so hard to do that well, especially when you're really early on [in your business].

If you don't have people that are with you in the same space and are passionate and understand your business as well as you do, it gets so difficult to actually execute. First, we were working with one shop in one country in Europe, and then we switched to another shop because it wasn't working well, and then we switched to another shop in Asia. I think we used three or four dev[elopement] shops that were outsourced.

What you ended up getting was really mediocre code and a lot of times you're relying on their 'expertise' and sometimes they're not really experts at what you're trying to do. As a software company, engineering is really a core competency and it was not something that we could ever outsource. About nine months into the business, we were able to hire an engineer from Adobe. We hit the jackpot; he still works with us today.

Right before we hired him, were working with five outsourced engineers; this one engineer came in, he was a young guy like us, but he was really, really smart, and passionate about what we do, and within a week ended our contracts with our outsourced engineers, and we ended up going about twice as fast with this one guy.

You should never outsource your core competencies. 

The Lesson:

You should never outsource your core competencies. The strategic parts of our business are our marketing, our sales team, our client success team, and really importantly, our product and our engineering teams. Those are just things that we decided early on we will not outsource, we'll keep it in house.

If a project comes up, what we do here, and I think it's relevant for everybody else, we first look at whether we have the expertise to do it internally. If we do, then obviously we just do it internally. If we don't, but we think it's strategic, then we will go out and build that competency or that skill set. If we don't feel it's strategic, and we don't have the skill set in house, then we are happy to go and find other people outside our company to go and help us with it.

I do believe that our one engineer – and today we have 40 engineers – his salary was twice as much as the five salaries of our outsourced engineers [combined]. You can't look at things that are strategic to the business as cost savings, you need to look at them as what the value that you're getting is.

Follow Podium on Twitter at @PodiumHQ.

Photo: Eric Rea | Courtesy of Podium.

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